Kentucky State Regulations & NAIC Insurance Law

Kentucky State Regulations and NAIC Insurance Law

Licensing

To apply for a Kentucky resident producer’s license, an individual must:

• Be at least 18 years old
• Be a Kentucky resident before submitting the application

Pre-licensing course and exam

A Kentucky resident applicant completes a prelicensing course before the examination: 40 hours for life and health, 40 hours for property and casualty, or 20 hours for each line of authority, as applicable (KRS 304.9-105).

An applicant must answer 70 percent of the examination questions correctly to pass (806 KAR 9:025, Section 2).

Fingerprints/background check

An applicant who makes Kentucky the home state submits a criminal background report from the Kentucky Administrative Office of the Courts to the Commissioner (KRS 304.9-150(8)).

Controlled business

Controlled business is insurance written on the producer’s own life, property or interests, or on those of the producer’s family, employer or a business the producer controls. A producer may insure themselves and their family, but a license exists to sell insurance to the public, so states generally restrict obtaining or using a license principally to write controlled business.

Kentucky will not grant, renew or continue a license used principally to write controlled business, and treats a license as used that way if, in any 12-month period, its controlled-business premiums exceed the premiums on all its other business (KRS 304.9-100).

Non-resident license

A producer licensed in another state can obtain a Kentucky nonresident license without taking Kentucky’s examination. Under the NAIC’s Producer Licensing Model Act, which most states have adopted in some form, a nonresident receives the license if the person:

• Is currently licensed as a resident, and in good standing, in the home state
• Has applied (the home-state application or the Uniform Application) and paid the fees
• Lives in a home state that grants nonresident licenses to residents of this state on the same basis (reciprocity)

Under the same model, a producer who moves to another state files a change of address, with certification from the new home state, within 30 days. A licensed producer who moves into a state applies for a resident license there within 90 days and does not repeat prelicensing education or the examination for lines already held.

Temporary license

Most states allow the insurance regulator to issue a temporary license, without an examination, when one is needed to keep an insurance business serviced. Typical cases are:

• The surviving spouse or personal representative of a producer who dies or becomes disabled, to allow time to sell the business or train new people
• A member or employee of a business entity producer, on the death or disability of its designated producer
• The designee of a producer entering active military service

The regulator may limit what a temporary licensee may do and may require a licensed sponsor who takes responsibility for the temporary licensee’s acts.

In Kentucky a temporary license lasts up to 180 days and requires no examination or prelicensing course (KRS 304.9-300).

Military service

A Kentucky licensee who cannot meet renewal requirements because of military service, a long-term medical disability or another extenuating circumstance may request, in writing, a waiver of those requirements (KRS 304.9-260(3)).

Renewal and reinstatement

A producer license stays in effect only while the producer renews it on schedule: paying the renewal fee and completing continuing education by the due date.

An individual Kentucky license renews every two years, by the last day of the licensee’s birth month (KRS 304.9-260(1)(g)).

A producer who misses the deadline and lets the license lapse may be able to reinstate it without retaking the examination.

A renewal received within 60 days after the license expires is accepted with a penalty and no interruption in the license (KRS 304.9-260(2)(b)). After that, a lapsed license can still be reinstated without the examination within 12 months of the renewal fee’s due date, for a penalty of double the unpaid renewal fee (KRS 304.9-170(1)(a)).

Continuing Education

All states, including Kentucky, require continuing education (CE) to renew major lines (life, health, property, liability) insurance licenses. Individuals licensed in Kentucky must complete continuing education before renewing. The number of hours required is set by state law and published by the state insurance department.

Notice of change of name or address

A Kentucky licensee informs the Commissioner in writing of a change of address or legal name within 30 days of the change (KRS 304.9-200(2)).

The model also requires a producer to report to the regulator within 30 days any administrative action taken against the producer in another state or by another government agency, counted from the final disposition, and any criminal prosecution in any jurisdiction, counted from the initial pretrial hearing date. A producer who does business under any name other than their legal name must notify the regulator before using it.

Company Regulations

An insurance company must be authorized by the Department of Insurance to conduct business in Kentucky. To receive a certificate of authority, the company applies to the Commissioner and files its charter or articles of incorporation, financial statements showing that it meets the state’s capital and surplus requirements, and the other documents and fees the state requires.

Capital and Surplus Requirement

An insurer authorized to conduct insurance business in Kentucky must meet minimum corporate standards. The certificate of authority allows the insurer to conduct business in the state only if it maintains the minimum required capital or permanent surplus. In Kentucky, the Commissioner must refuse to continue, suspend or revoke the certificate of a foreign or alien insurer that no longer meets the requirements on account of deficiency of capital or surplus, or of a domestic insurer that has failed to cure an impairment within the time allowed (KRS 304.3-190(1)(b)-©).

Duties of the Commissioner of Insurance

The Kentucky Commissioner of Insurance is a state executive position. The Commissioner is the chief executive of the Kentucky Department of Insurance, which regulates insurance companies operating in Kentucky.

• The Commissioner is appointed by the Governor.
• The Commissioner serves a term not to exceed 4 years.
• No person appointed after July 14, 2000, may serve more than two (2) consecutive terms.

The Commissioner establishes and enforces regulations in the Kentucky insurance market in a manner that protects consumers and encourages economic development.

Those duties include:

• Investigate all claims and complaints of legal violations relating to insurance.

• If the Commissioner finds that laws have been violated, the findings and supporting documents may be referred for criminal prosecution.

• Monitor transactions of all companies including domestic, foreign, and alien insurance companies.

• The Commissioner examines each domestic insurer at least every five years (KRS 304.2-210(2)).

• Audit the books and records of any resident producer as frequently as necessary.

• Collect all fees associated with producers and insurers.

• Determine and administer fines associated with violations for insurers and producers.

• Issue reports pertaining to the suspension and revocation of licenses of producers and certificates of authority for insurers.

• Approve documentation used by insurance companies such as forms and rates.

Sidenote

Know this...

The Commissioner does not have the authority to arrest, issue injunctions or sentence jail time. They can get the process started, but it takes a law officer to arrest and a judge or court of law to issue injunctions or sentence jail time.

In Kentucky, special investigators of the Division of Insurance Fraud Investigation have general police powers, including the power to arrest (KRS 304.47-040(2)(a)).

Suspend, Revoke or Non-renew

The Commissioner has the authority to suspend, revoke, or refuse to renew a license for:

• Providing false information on the application for an insurance license.

• Omitting any relevant information on an application that would have disqualified the individual from being eligible to receive a license.

• Being found guilty of a violation or the noncompliance of insurance regulations and laws…

• Committing fraud while attempting to obtain an insurance license.

• Improperly withholding, misappropriating or converting any money or property received in the course of doing insurance business.

• Providing false information in reference to the terms and conditions of an insurance contract.

• Having been convicted of, or having pled guilty or nolo contendere to, any felony, or having been convicted of a misdemeanor involving dishonesty, breach of trust or moral turpitude, or one for which restitution over $300 is ordered (KRS 304.9-440(1)(f), (p)).

• Having admitted or been found to have committed any insurance unfair trade practice or fraud.

• Having engaged in activities of a fraudulent nature which allowed the person to involve themselves in dishonest, coercive, untrustworthy, and financially irresponsible practices.

• Having had a prior insurance license revoked or suspended in a state other than Kentucky.

• Using another person’s identity and forging their name on an insurance application.

• Being found guilty of using unethical practices or cheating on an examination for an insurance license.

Cease and Desist

If the Commissioner finds that a producer has violated the state’s insurance laws, the Commissioner may order the producer to cease and desist. A cease and desist order does not, by itself, suspend or revoke the recipient’s registration, but it does require the recipient to stop or limit the activity addressed in the order.

Hearing and penalties

A person facing action by the Commissioner is entitled to notice and an opportunity for a hearing, within time limits set by Kentucky law, and may ask a court to review the final order.

A person aggrieved by the Commissioner’s act or order applies for a hearing within 60 days after learning of it, unless another law sets a different period (KRS 304.2-310(2)(b)).

A violation of the insurance laws can bring a civil penalty in addition to action against a license. State law sets the maximum, usually per violation and often with a cap on the total, and a higher tier commonly applies to a violation that was knowing or flagrant. Some violations are also crimes.

In place of, or in addition to, suspending or revoking a license, the Commissioner may impose a civil penalty of up to $1,000 per violation on an agent, $2,000 on an adjuster or consultant, and $10,000 on an insurer (KRS 304.99-020).

Unfair Claims Settlement Practices

Under the NAIC’s model act, these practices are violations when committed flagrantly and in conscious disregard of the law, or often enough to indicate a general business practice.

• The intentional obstruction and delay of claims payment or the delay of a claims investigation is a violation of regulation.

• Neglecting to provide a prompt response and written explanation of insurance policy terms, conditions, and laws related to the contract are examples of unfair claims settlement practices.

• Failure to provide claims without launching a thorough investigation is a violation of regulation.

• Making settlement claims based on information contained on an application that has been altered without the insured’s consent is a violation of regulation.

• Denying a claim without conducting a thorough investigation.

• Attempting to settle a claim for less than fair market value.

Policy forms

Insurers file their policy forms with the Commissioner.

Policy forms are filed with the Commissioner and are deemed approved after 60 days unless the Commissioner has approved or disapproved them earlier (KRS 304.14-120).

If a policy provision conflicts with Kentucky law, the policy is read as amended to conform to the law.

Record maintenance

A producer keeps records of each transaction (the policies placed, the insureds, the premiums received and any changes) and makes them available for the Commissioner’s inspection.

A Kentucky producer keeps transaction records available for the Commissioner’s inspection for at least five years after each transaction is completed (KRS 304.9-390(3)).

Fraudulent Producer Representation

An insurance producer who represents to the public that they are licensed to conduct insurance business in Kentucky, but has not passed the appropriate licensing examination, is in violation of regulation. This includes public communications such as advertisements, letterheads, circulars, business cards, and other methods of representation.

A producer found guilty of conducting business in Kentucky in any line of insurance for which they are not properly licensed may have any other insurance license suspended or revoked.

Misrepresentation

• Misrepresentation involving the creation or distribution of policies, quotes, and illustrations designed to provide inaccurate information about the terms and conditions of a policy is prohibited.

• Providing inaccurate or incomplete information or comparisons regarding the benefits of a policy is an example of misrepresentation.

• Providing inaccurate or incomplete information for the purpose of inducing, or tending to induce, the lapse, exchange, conversion, forfeiture, or surrender of a policy is a violation as well (twisting).

False advertising

Making, publishing or circulating an advertisement, announcement or statement about the business of insurance that is untrue, deceptive or misleading is an unfair trade practice under state law, based on the NAIC’s model act. The medium does not matter: the rule reaches newspapers, magazines, radio and television, and also notices, circulars, pamphlets, letters, posters and any other way of placing the statement before the public. The model act’s test is whether the statement is untrue, deceptive or misleading, not whether the person meant to deceive.

Defamation

Defamation of an insurer is an unfair trade practice under state law, based on the NAIC’s model act: making, publishing or circulating an oral or written statement that is false, or maliciously critical of or derogatory to the financial condition of an insurer, and that is calculated to injure that insurer or any other person engaged in the business of insurance. Spreading an untrue rumor that a competing insurer is about to fail is the classic example.

Boycott, Coercion and Intimidation

Entering into an agreement to commit, or by concerted action committing, any act of boycott, coercion or intimidation that results or tends to result in unreasonable restraint of, or monopoly in, the business of insurance is prohibited.

False Financial Statements

Any licensed producer who makes false statements containing inaccurate material facts, or makes false statements on an application for insurance, is in violation of the state’s unfair trade practices law.

Illegal inducements

Offering anything of value not specified in the policy (money, a service, a favor or a gift) as an inducement to buy insurance is prohibited unless state law expressly allows it, and any agreement made as part of the sale must be written into the policy.

Kentucky prohibits giving or offering a rebate, discount or other valuable consideration not specified in the policy as an inducement to insurance, apart from the exceptions its statutes list (KRS 304.12-090).

A producer may give a non-cash gift in connection with the marketing, purchase or renewal of insurance if it costs no more than $250 a year and is not conditioned on buying or renewing a policy (KRS 304.12-092).

Unfair discrimination

Unfair discrimination is treating people or risks that present the same hazard differently. The NAIC’s model act, on which state unfair trade practices laws are based, prohibits:

• Unfair discrimination between individuals of the same class and equal expectation of life in life insurance and annuity rates, dividends, benefits or terms
• Unfair discrimination between individuals of the same class and essentially the same hazard in health insurance premiums, benefits or terms
• Refusing, limiting or canceling coverage because of a person’s sex, marital status, race, religion or national origin
• In property and casualty insurance, refusing or limiting coverage solely because of a risk’s geographic location, unless sound underwriting and actuarial principles justify it, or solely because the applicant or insured is physically or mentally impaired

Many states also expressly forbid refusing or limiting coverage solely because a person is blind or partially blind.

Errors & Omissions

Errors & Omissions (E&O) insurance is a type of professional liability insurance that protects insurance agents if they are sued for negligent performance of their duties. E&O covers honest mistakes that result in (financial) damage to customers or prospects. It does not cover violations of insurance regulation.

Rebating

Kentucky licensed producers are prohibited from directly or indirectly giving any refund, discount, favor, or credit to reduce premiums to induce the purchase of insurance.

Sidenote

Know this...

To “solicit” or “negotiate” insurance implies that the person is licensed.

Sharing Commission

Splitting or sharing commissions with a licensed producer is allowed. Both parties must be licensed in the line of business in which the commission is being split. Under the NAIC’s model act, a commission may also be paid to an insurance agency, or to a person who does not sell, solicit or negotiate insurance.

Twisting

Providing false information or expressing derogatory ideas about the financial conditions of a competitor company with the intent to lapse or surrender an existing policy is a violation of the law. Any written or oral statements used to induce the lapse, termination, exchange, or surrender of an insurance contract based on inaccurate information is prohibited.

Under the NAIC’s model act, twisting is a misrepresentation made to induce a policyholder to lapse, forfeit, surrender, exchange or convert a policy. A false or maliciously critical statement about a competing insurer’s finances, made to injure it, is defamation.

Unfair Marketing Practices

The Department of Insurance establishes minimum standards for full and fair disclosure of policy content. The Department also requires standardization and simplification of the terms used to describe insurance coverage.

Advertising may not involve the following:

• Any statement or implication that policies are approved, or that the financial condition of a company is endorsed, by any government agency or by any independent group, individual, organization or society, unless that is the fact.

• Any statements regarding advertising that are false or untrue in reference to the time frame in which claims are paid.

Gramm-Leach Bliley Act (GLBA)

This law repealed the Glass-Steagall Act of 1933, allowing consolidation of commercial banks, investment institutions and insurance companies. GLBA established a framework of responsibilities of federal and state regulators for these financial industries. It permits financial services companies to merge and engage in a variety of new business activities, including insurance, while attempting to address the regulatory issues raised by such combinations.

McCarran-Ferguson Act

Federal law signed in 1945 in which Congress declared that the insurance industry would be regulated at the state level. Grants insurers a limited exemption from federal antitrust legislation. Since 2021 the exemption does not cover the business of health insurance, apart from narrow activities such as sharing historical loss data (15 U.S.C. § 1013©).

National Association of Insurance Commissioners (NAIC)

The U.S. standard-setting and regulatory support organization is created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA, 15 U.S.C. 1681) regulates consumer reporting agencies and the use of consumer reports, such as credit reports, MIB records and investigative reports, including in insurance underwriting.

• When an insurer requests an investigative consumer report, it must disclose that to the consumer within 3 days of the request
• When an insurer takes adverse action based on a consumer report, it must notify the consumer and identify the reporting agency. The consumer then has 60 days to request a free copy of the report and may dispute inaccurate information

Privacy Act of 1974

The federal Privacy Act of 1974 governs how federal agencies handle personal information. It does not apply to private insurers. An insurer’s use of an applicant’s personal information is governed by the FCRA, the Gramm-Leach-Bliley Act and state insurance privacy law.

Kentucky’s insurance privacy regulation limits an authorization to disclose a person’s health information to no more than 24 months (806 KAR 3:210, Section 19).

Telemarketing

The National Do Not Call Registry is a list of telephone numbers whose owners do not want to receive telemarketing calls. Telemarketers may not call registered numbers without the person’s permission or an established business relationship, and unsolicited sales calls:

• May be made only between 8 a.m. and 9 p.m. in the recipient’s local time under federal rules; Kentucky’s own law is narrower, prohibiting telephone solicitations to a residence except between 10 a.m. and 9 p.m. local time at the called person’s location (KRS 367.46955(16))
• Must disclose the caller’s identity, the company the caller represents and that the purpose is a sale

CAN-SPAM

A commercial email must:

• Be identified clearly as an advertisement
• Carry accurate header information and a subject line that is not deceptive
• Include the sender’s valid physical postal address
• Offer a way to opt out, and the sender must honor an opt-out within 10 business days

Insurance guaranty association

Every state has a property and casualty insurance guaranty association that pays covered claims when a member insurer becomes insolvent. Insurers licensed to write the covered lines in the state must belong to it, and it is funded by assessments on its members.

The Kentucky Insurance Guaranty Association pays up to $300,000 per claimant on most covered claims and up to $10,000 per policy for unearned premium (KRS 304.36-080).

Auto insurance state minimum

A state’s financial responsibility law sets the minimum liability an auto policy must carry, written as a split limit: the first number is bodily injury liability per person, the second bodily injury liability per accident, and the third property damage liability per accident, each in thousands of dollars.

Kentucky’s minimum auto liability limits are 25/50/25: $25,000 for bodily injury to one person, $50,000 for bodily injury per accident and $25,000 for property damage, or a single limit of $60,000 (KRS 304.39-110).